Wednesday, November 28, 2007

The NAR reports that Existing Home sales fell below 5 million (SAAR) in October, the lowest level since 2000.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – eased by 1.2 percent to a seasonally adjusted annual rate1 of 4.97 million units in October from a downwardly revised level of 5.03 million in September, and are 20.7 percent below the 6.27 million-unit pace in September 2006.

Click on graph for larger image.

The first graph shows the Not Seasonally Adjusted (NSA) sales per month for the last 3 years. Note that on an NSA basis, October sales were slightly above September.

The impact of the credit crunch is obvious as sales in September and October declined sharply from earlier in the year.

For existing homes, sales are reported at the close of escrow. So October sales were for contracts signed in August and September.

The second graph shows nationwide inventory for existing homes. According to NAR, inventory was up slightly at 4.453 million homes for sale in October.

Total housing inventory rose 1.9 percent at the end of October to 4.45 million existing homes available for sale, which represents a 10.8-month supply at the current sales pace, up from a downwardly revised 10.4-month supply in September.

This is basically the same inventory level as the last few months, although the months of supply increased to 10.8 months as SA sales fell, and inventory increased slightly.

This is the normal historical pattern for inventory - inventory peaks at the end of summer and then stay fairly flat until the holidays (it then usually declines somewhat). This says nothing about the increasing anxiety of sellers and the rising foreclosure sales.

This wasn't true in 2005 - as inventory continued to increase throughout the year - and that was one of the indicators that the housing boom had ended.

For 2007, I expect that inventory levels are close to the peak level.

The third graph shows the 'months of supply' metric for the last six years.

Even if inventory levels stabilize, the months of supply could continue to rise - and possibly rise significantly - if sales continue to decline.